Avant-Garde Shop

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Gifts, Novelties, Souvenir Business Plan

Financial Plan

The initial funding from investors (ABC Company and XYZ Company) will enable us to renovate the space and buy initial inventory. With heavy marketing and outreach to customers who work outside the Avant-garde Building, we expect to pass the break-even point early in the second year of this plan.

We will keep costs to a minimum: 2 full-time employees will run the shop, while advisors and directors from AMC Company will oversee operations under their existing duties at PT. ABC Company. We will begin paying dividends to these investors in the second year.

Please note that all tables and charts show data in 1,000's of Indonesian Rupiah (Rp.).

8.1 Start-up Funding

Approximately Rp. 166,597,000 will be needed from the shareholders for these purposes. Some of the funding is priority as it's crucially important to go on to the next step of development. The remainder of the start-up capital required, for the continuation of operations, will be provided by the end of the project. We will start paying dividends to the investors in year two of operations (see Cash Flow table for details).

Start-up Funding
Start-up Expenses to Fund $72,000
Start-up Assets to Fund $94,597
Total Funding Required $166,597
Assets
Non-cash Assets from Start-up $25,282
Cash Requirements from Start-up $69,315
Additional Cash Raised $0
Cash Balance on Starting Date $69,315
Total Assets $94,597
Liabilities and Capital
Liabilities
Current Borrowing $0
Long-term Liabilities $0
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $0
Capital
Planned Investment
PT. XYZ (32%) $63,307
PT. ABC Indonesia (62%) $103,290
Additional Investment Requirement $0
Total Planned Investment $166,597
Loss at Start-up (Start-up Expenses) ($72,000)
Total Capital $94,597
Total Capital and Liabilities $94,597
Total Funding $166,597

8.2 Important Assumptions

  • We assume that we at least secured our purchase of merchandise in the first two years of operation.
  • All employees except Store Staff are working under Interim Management Team.
  • The Avant-Garde Shop assumes a medium growth in the beginning, without major recession.
  • The Avant-Garde Shop assumes of course that there are no unforeseen significant increase of the retail space.

8.3 Key Financial Indicators

The key indicators of financial success are all positive in our plan: increasing sales, increasing control over costs, and increasing profit margins.

8.4 Break-even Analysis

Our break-even analysis is summarized by the following chart and table (all numbers in 1,000's of Rupiah). At a 28% variable (direct) cost of goods, we will break-even when monthly sales hit Rp. 8,022,000. We will reach the break-even point early in our second year.

Break-even Analysis
Monthly Revenue Break-even $8,022
Assumptions:
Average Percent Variable Cost 28%
Estimated Monthly Fixed Cost $5,776

8.5 Projected Profit and Loss

The following chart and table indicates projected profit and loss. Our rent is the highest operating expense, at Rp. 28,000,000 per month, because of the high cost per square meter inside the Avant-Garde Building.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $90,299 $95,717 $101,460
Direct Cost of Sales $25,282 $22,530 $22,980
Other Costs of Sales $0 Rp.0 Rp.0
Total Cost of Sales $25,282 $22,530 $22,980
Gross Margin $65,017 $73,187 $78,480
Gross Margin % 72.00% 76.46% 77.35%
Expenses
Payroll $21,600 $23,400 $23,400
Marketing/Promotion $4,515 $4,786 $5,073
Depreciation $0 $0 $0
Rent $28,800 $28,800 $28,800
Utilities $12,000 $12,000 $12,000
Other $2,400 $2,400 $2,400
Total Operating Expenses $69,315 $71,386 $71,673
Profit Before Interest and Taxes ($4,297) $1,801 $6,807
EBITDA ($4,297) $1,801 $6,807
Interest Expense $0 $0 $0
Taxes Incurred $0 $0 $0
Net Profit ($4,297) $1,801 $6,807
Net Profit/Sales -4.76% 1.88% 6.71%

8.6 Projected Cash Flow

Cash flow projections are critical to our success. The following table shows cash flow for the first three years, and the chart illustrates monthly cash flow in the first year. Monthly cash flow projections are included in the appendix. This table shows our planned dividends paid out to investors in the second and third years.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $90,299 $95,717 $101,460
Subtotal Cash from Operations $90,299 $95,717 $101,460
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0
New Long-term Liabilities $0 $0 $0
Sales of Other Current Assets $0 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $0 $0 $0
Subtotal Cash Received $90,299 $95,717 $101,460
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $21,600 $23,400 $23,400
Bill Payments $59,711 $66,981 $71,309
Subtotal Spent on Operations $81,311 $90,381 $94,709
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $0 $0 $0
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $3,000 $3,000
Subtotal Cash Spent $81,311 $93,381 $97,709
Net Cash Flow $8,988 $2,336 $3,751
Cash Balance $78,303 $80,639 $84,390

8.7 Projected Balance Sheet

The table shows the annual balance sheet results. After the first year, when we establish profitability, we project a steady growth in net worth despite dividend payments to initial investors. Detailed monthly projections are in the appendix.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $78,303 $80,639 $84,390
Inventory $15,840 $14,116 $14,398
Other Current Assets $0 $0 $0
Total Current Assets $94,143 $94,755 $98,787
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $94,143 $94,755 $98,787
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $3,844 $5,654 $5,880
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $3,844 $5,654 $5,880
Long-term Liabilities $0 $0 $0
Total Liabilities $3,844 $5,654 $5,880
Paid-in Capital $166,597 $166,597 $166,597
Retained Earnings ($72,000) ($79,297) ($80,496)
Earnings ($4,297) $1,801 $6,807
Total Capital $90,300 $89,101 $92,908
Total Liabilities and Capital $94,143 $94,755 $98,787
Net Worth $90,300 $89,101 $92,908

8.8 Business Ratios

The following table outlines some of the more important ratios from the Gift, Novelty, and Souvenir Shop industry. The final column, Industry Profile, details specific ratios based on the industry as it is classified by the Standard Industry Classification (SIC) code, 5947.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 6.00% 6.00% 0.44%
Percent of Total Assets
Inventory 16.83% 14.90% 14.57% 34.88%
Other Current Assets 0.00% 0.00% 0.00% 23.80%
Total Current Assets 100.00% 100.00% 100.00% 76.55%
Long-term Assets 0.00% 0.00% 0.00% 23.45%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 4.08% 5.97% 5.95% 34.24%
Long-term Liabilities 0.00% 0.00% 0.00% 15.29%
Total Liabilities 4.08% 5.97% 5.95% 49.53%
Net Worth 95.92% 94.03% 94.05% 50.47%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 72.00% 76.46% 77.35% 39.04%
Selling, General & Administrative Expenses 76.76% 74.58% 70.64% 24.17%
Advertising Expenses 0.00% 0.00% 0.00% 1.96%
Profit Before Interest and Taxes -4.76% 1.88% 6.71% 1.36%
Main Ratios
Current 24.49 16.76 16.80 1.99
Quick 20.37 14.26 14.35 0.81
Total Debt to Total Assets 4.08% 5.97% 5.95% 51.50%
Pre-tax Return on Net Worth -4.76% 2.02% 7.33% 2.37%
Pre-tax Return on Assets -4.56% 1.90% 6.89% 4.90%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin -4.76% 1.88% 6.71% n.a
Return on Equity -4.76% 2.02% 7.33% n.a
Activity Ratios
Inventory Turnover 1.78 1.50 1.61 n.a
Accounts Payable Turnover 16.53 12.17 12.17 n.a
Payment Days 27 25 29 n.a
Total Asset Turnover 0.96 1.01 1.03 n.a
Debt Ratios
Debt to Net Worth 0.04 0.06 0.06 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $90,300 $89,101 $92,908 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 1.04 0.99 0.97 n.a
Current Debt/Total Assets 4% 6% 6% n.a
Acid Test 20.37 14.26 14.35 n.a
Sales/Net Worth 1.00 1.07 1.09 n.a
Dividend Payout 0.00 1.67 0.44 n.a